U.K. reveals Microsoft bargaining tactics

A parliament committee discloses in a report how the government is saving on software procurement through tough negotiations and threats of going with Linux.

28 February 20043:58 am AEDT

The British government says it is saving millions of pounds on software contracts through a willingness to go to the mat with companies such as Microsoft.

Government departments are on track to save $186 million (100 million pounds) over three years through a combination of market intelligence and a more coordinated approach to licensing, according to a cross-party group of parliament members. Key to this has been hard bargaining with a reluctant Microsoft and a willingness to consider open-source alternatives, says the group.

In its report, titled "Purchasing and Managing Software Licences," the Public Accounts Committee said that although government departments had expected to save $67 million on licenses for the three years ending March 2005, they had shattered this target by September 2003 with savings of $91million.

This achievement was driven by the Office of Government Commerce, which led the effort with a memorandum of understanding that it foisted first upon Microsoft and later on its other major software suppliers, including Sun Microsystems, IBM, Oracle and Corel. Some 95 percent of government departments have Microsoft licenses.

The memorandum was produced in response to the new licensing arrangements that Microsoft released in August 2002 and which, said the Public Accounts Committee, would have cost government departments as much as $112 million a year extra.

"Initially the company was unwilling to negotiate with (Office of Government Commerce), and it took five months to conclude the memorandum," said the parliament members, who cited the importance of bulk-negotiating. "Fundamental to achieving the deal was the willingness of the wider public sector, including local authorities...to cooperate with (the office) during negotiations."

Negotiation was difficult, the parliament members said, because "Microsoft requires its customers not to reveal to third parties the level of discount they receive. Purchasers are therefore unable to determine whether the price being offered is better than those for other customers."

Although the Office of Government Commerce stated that it receives discounts from Microsoft and expects the next "discount threshold" to be reached this year, Microsoft itself appears reluctant to admit that it hands them out.

A fair price
Mark Buckley, licensing marketing manager for Microsoft UK, said the company has always stood behind the value it gives its customers, but that it is always open to discussing contracts.

Although he stopped short of saying that Microsoft will negotiate on price, Buckley did say in an interview prior to publication of the report that Microsoft can look at the type of license an organization has.

"Sometimes customers buy what they perceive to be the best license," he said. "Licensing is how you get a fair price for service. We are open to discuss any licensing contract with the customer. We can look at the license types and suggest a more appropriate one."

In some case, this "looking" has been aided by organizations considering a move to open-source alternatives.

In its report, the Public Accounts Committee said that open-source software such as Linux, which is already in widespread use on servers among government departments, may soon be a viable alternative to existing software suppliers for the desktop.

But, warned Buckley, organizations looking to lower their licensing costs should not automatically issue the threat of moving to open source. "Don't lead a negotiation with a threat you have no intention of carrying out," he said.